Czech government decides not to raise retirement age

Retirement age will not be raised in the Czech Republic, PM Andrej Babis (ANO) and labor minister Jana Malacova (Social Democrats, CSSD) said after a cabinet meeting that discussed a report on the development of the country’s pension system. The report says that without being changed, the PAYG pension system will run into the future, but that the pension spending growth might be softened by raising the retirement age ceiling. Babis said the pension system account was currently in surplus and that he did not fear that the state would have no sources to pay pensions from. Yet, he admitted that while there was no debate on raising the retirement age, pensions may pose a problem from the long-term point of view. Malacova elaborated that raising the retirement age would lead to an increasing number of unemployed elderly people and early retirements, adding that while people’s life expectancy has been rising, the length of people’s live in health has not been rising. Thus, the retirement age ceiling will be kept at the current 65 years. Both Babis and Malacova concurred that the government has to deal with the differences between the pensions of men and women and with the possibilities of early retirement for people in selected demanding professions.

The retirement age has been gradually approaching the cap of 65 years as set by the previous cabinet (2014-17). At present, men retire at the age of 63.5 and women somewhat earlier depending on the number of children raised. Recall that a report by the labor ministry in the beginning of the year indicated that spending on pensions would add up to 11.5% of GDP by 2060, in case the retirement age remains unchanged (the pension system deficit is to be 3.4% of GDP), but would be at 10.5% of GDP if the retirement age gradually increases (the deficit of the system would never exceed 2%). The labor ministry estimates were more upbeat than those of the National Budget Council, according to which the pension system deficit would be about 2pps higher than what the labor ministry currently expects and according to which without a pension system reform, public finances would be unsustainable in the long run. The Council’s head Eva Zamrazilova commented on Monday that maintaining the current retirement age cap at 65 years would mean a gradual increase in pension-system deficits to up to 4% of GDP per year in the next four decades, with the annual spending on pensions exceeding the system’s revenues by CZK 225bn in current prices. She also said that the problem would shrink by a half if the condition of one-quarter of life in retirement, anchored in law, were observed and if the life retirement limit were adjusted accordingly. Zamrazilova underlined that given the current forecasts of the structural balance development in the years to come, keeping the retirement age cap unchanged would lead to a complete exhaustion of the fiscal policy’s maneuvering space.

In the meantime, the government adjourned its debate on a broader document, the Strategic framework of the preparation for the population ageing. ANO and CSSD representatives are to deal with it at a Coalition Council meeting next week.

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